September 23, 2021

Fed unlikely to start tapering its asset purchases in September

 In the past few days, all attention has been focused on the Fed. This is the time when members of the Monetary Policy Committee cannot give any comments. Although no hints have been given by the Fed in recent days, markets believe that the regulator will announce the start of QE tapering in September. As we have mentioned earlier, there are two opposite views on this issue. The supporters of the first one believe that the Fed will announce its decision today while the tapering itself may begin later. Others think that the cut of the QE program will be announced no earlier than November, that is, at the next Fed's meeting. Notably, different instruments show a different reaction to the anticipated announcement. For example, the European currency is trading flat against the US dollar while the British pound continues to decline strongly against the greenback. Meanwhile, bitcoin is getting cheaper, and the US stock indices are going through a correction. Thus, we can assume that markets have a different view on what the Fed will announce in just 5 hours.

JPMorgan Chase CEO Jamie Dimon believes that the Fed will drastically change its monetary policy next year. Dimon is sure that the regulator will respond to rising inflation over the next few months. Although Jerome Powell assured the markets that the growth in the consumer price index is "temporary," Dimon believes that high inflation can stay much longer than "until the end of the year." In this case, the Fed will have no choice but to take action. Jamie Dimon explains that if inflation continues to remain high, the Fed will inevitably start to cut back on its stimulus program. He expects decisive action from the Fed not earlier than next year. It is not clear though whether Dimon takes into account the possibility that the QE may be reduced as soon as this year ...

In the meantime, according to Reuters, the Fed is only expected to set the stage for stimulus tapering that will take place later this year. Reuters pays more attention to macroeconomic forecasts. The economic data should make it clear what affects the US economy more: high inflation or the next wave of the pandemic.In recent weeks, the number of new coronavirus cases in the United States has slightly decreased y. Over the past 7 days, 130,000 new Covid-19 cases a day have been reported in the US. Despite a slowdown in the virus spread, the number of infections is still very high which creates additional risks for the US economy. Most of the macroeconomic indicators for August came in weaker than expected. Thus, the Fed cannot downplay this factor. If the central bank takes this data into account, it is more likely to wait a couple of months before announcing the tightening of the stimulus program.